Menu
Property

Negatively gearing property

WITH the correct financial advice combined with the right property, negatively gearing is a great way for you to enter the property investment market and or increase your property portfolio.

When the costs of owning a property exceed the income the property generates, it is said to be negatively geared. Once a loss is realised a tax claim or deduction can take place.

Deductions can be categorised into three main classes:

  1. Building deductions - Items such as the building can be claimed and depreciated. Deduction rates of either 2.5% p.a. or 4% p.a. are applicable depending upon the construction date.
  2. Revenue deductions - This includes home loan interest, repairs, ongoing maintenance, management fees, insurance, body corporate fees, bank fees, gardening, cleaning, municipal rates and taxes as well as other rates like gas & water.
  3. Capital deductions - Capital items such as light fittings, hot water service, air conditioners and furniture are subject to depreciation. Items such as these are depreciated over a number of years rather than all at once. To submit a tax claim an investor needs to organise a property depreciation schedule from a professionally qualified person.

As is the case there are inherent risks associated when borrowing to fund an investment. The upside is your gains can be increased however your losses can be magnified. As a rule investors should be financially capable to absorb the effects of falls in values as well as the possibility of interest rate fluctuation. To minimise the risk the following should be considered:

  1. Select a property that is easy to attract good tenants and one that has a great location and will increase in value over the long term.
  2. Include Mortgage Protection Insurance with your investment loan.
  3. Have sufficient funds to cover.
  • Repayments if your tenants are late with their rent.
  • If the property is vacant for a period of time.
  • Ongoing repairs and maintenance.

Here is a simple example of the way a negative geared investment can work.

Purchase price $ 400,000

Deposit $ 50,000

Total Borrowed $ 350,000


Interest 6% p.a. $ 21,000

Rent p.a. $ 15,000

Outgoings inc. deprec.

rates, insurance, water $ 3,000

Net Income $ 12,000

Net Loss $ 9,000

In this example the investor has reduced their tax liability on their assessable income by the net loss of $9,000.

This type of investment is not for everyone and you should always consult your accountant or financial advisor before launching into a negative gearing strategy.

 





Ute and truck smash on highway

CRASH RESCUE: At 2am on Sunday the Westpac Life Saver Rescue Helicopter was called out to a crash involving a ute colliding with a truck on the Pacific motorway near Brunswick Heads.

Pacific Highway blocked after ute and truck smash

Ferry return to service delayed

No Caption

Service will not resume as expected

Local Partners

The millionaire real estate mogul who rents

Luis D Ortiz, the real estate genius who made millions in New York, then walked away, is on his way to Australia.

The millionaire real estate mogul who prefers to rent

How Rivers home owners can save $5000 a year

Finance experts say that, based on an average 30-year home loan of $371,100, households could save $5412 a year in repayments with a few simple steps.

We show you how to make money from your home

Coffee king forks out $6.5m for Queensland home

Philip and Gianna Di Bella now have a new New Farm at home. Picture: Annette Dew.

Phillip Di Bella has forked out $6.5 million for a New Farm home

Rare look inside ghostly abandoned casino

Photojournalist Jakub Kyncl managed to get inside Romania’s creepy old Constanta Casino. Picture: Jakub Kyncl

The haunting remains of Romania’s grandest casino